28 Unemployment and Its Natural Rate About Unemployment Movies mended Raining Stone Bicycle Thieves LEARNING OBJECTIVES Ø the data used to measure the amount of unemployment. Ø how unemployment can result from minimum-wage laws. Ø how unemployment can arise from bargaining between firms and unions. Ø how unemployment results when firms choose to pay efficiency wages. IDENTIFYING UNEMPLOYMENT Categories of Unemployment The problem of unemployment is usually divided into two categories. The long-run problem and the short-run problem: The natural rate of unemployment The cyclical rate of unemployment IDENTIFYING UNEMPLOYMENT Natural Rate of Unemployment The natural rate of unemployment is unemployment that does not go away on its own even in the long run. It is the amount of unemployment that the economy normally experiences. IDENTIFYING UNEMPLOYMENT Cyclical Unemployment Cyclical unemployment refers to the year-to-year fluctuations in unemployment around its natural rate. It is associated with with short-term ups and downs of the business cycle. IDENTIFYING UNEMPLOYMENT Describing Unemployment Three Basic Questions: How does government measure the economy’s rate of unemployment? What problems arise in interpreting the unemployment data? How long are the unemployed typically without work? How Is Unemployment Measured? Unemployment is measured by the Bureau of Labor Statistics (BLS). It surveys 60,000 randomly selected households every month. The survey is called the Current Population Survey. How Is Unemployment Measured? Based on the answers to the survey questions, the BLS places each adult into one of three categories: Employed Unemployed Not in the labor force The BLS considers a person an adult if he or she is over 16 years old. How Is Unemployment Measured? A person is considered employed if he or she has spent most of the previous week working at a paid job. A person is unemployed if he or she is on temporary layoff, is looking for a job, or
